FMC Reviews Carrier Billing Practices
Client Alert
During the course of the Federal Maritime Commission’s (FMC) investigation of the demurrage and detention practices of the vessel operators in Docket No. 19-05, Interpretive Rule on Demurrage and Detention Under the Shipping Act, several parties raised concerns about why they should have been invoiced for any of those or other charges in the first place. More specifically, these commentators questioned the propriety of how the VOCCs’ bills of lading define the term “Merchant.” As those definitions generally include parties such as anyone acting on behalf of the shipper or consignee, the comments included complaints about having been dunned for these charges even if their only role was to act as an ocean forwarder or customs broker.
These comments, and similar complaints forwarded by the National Customs Brokers & Forwarders Association of America (NCBFAA), resonated with the FMC. And, on October 7, 2020, the FMC issued a Notice of Inquiry (NOI) seeking public comment as to whether this was a normal experience and whether the trade industry regarded it as problematic. The new proceeding is entitled Docket No. 20-16, Notice of Inquiry – Vessel Operating Common Carrier Definition and Application of the Term “Merchant” in Bills of Lading.
As noted in the NOI, general contract law principles provide that a party cannot properly enforce a contract against another party who has not agreed to be bound by its terms and conditions. By expanding the definition of “Merchant” in this fashion, the carriers appear at times to be holding non-contracting parties—who have no interest in the cargo, are acting only as agent of the beneficial cargo owners and/or typically appear on the bills of lading only as a Notify Party or Forwarding Agent—liable for unpaid charges.
The FMC has accordingly initiated this NOI to determine whether VOCCs are unjustly or unfairly assessing charges on third parties with whom they have no contractual relationship. The FMC is seeking public comment on the following:
- How VOCCs apply the term “Merchant” in their bills of lading
- Whether the definition, as applied, subjects third parties who are not in contractual privity with the carrier to joint or several liability
- Whether carriers have enforced the definition of merchant against third parties such as customs brokers and freight forwarders that have not consented to be bound by, or otherwise accept, the terms and conditions of the bill of lading
The FMC also intends to contact certain VOCCs to provide information on their billing practices and their application of the definition of “Merchant.” The FMC has opened this NOI to all industry stakeholders. VOCCs, shippers, ports, maritime terminal operators, ocean transportation intermediaries, truckers, stevedores, and customs brokers are encouraged to submit comments.
Comments are due by November 6, 2020 and should be submitted by email to secretary@fmc.gov, with the subject line: “Response to FMC NOI—Merchant Clause.” It is important to note that these comments can be filed confidentially, so that anything stated would not be made available to the carriers or other parties. Consequently, if this is an issue that your company has experienced, it is worth considering the submission of comments, so that the FMC can have a record on which it can put an end to what seems to be an unreasonable practice.
A copy of the notice of inquiry is available on the FMC’s website at www.FMC.gov.
Of course, if you have any questions or wish assistance in drafting comments, please feel free to contact us.